Keeping An Eye On Demand

he volatility of the market of late has caused some yarn spinners to look at long-term
prospects with a somewhat jaundiced eye.

“I would love to be able to look down the road — six, 12, 18 months — and be able to plan
production,” said one noted Georgia specialty ring spinner. “But there are times these days when I
have problems seeing past next week. We started out the year with high expectations, based on the
way the market was running last year. But, so far, most of our expectations have failed to
materialize. Last year, everyone was fairly optimistic. Going into the first quarter of this year,
business was, maybe, okay. Now everybody, especially in the ring-spinning sector, is complaining
about business being soft. I don’t know much about open-end, I hear those guys are pretty busy —
but I don’t know how their volume of business relates to capacity. I just know that, for us, it’s
horrible right now.”

Said another Southeastern spinner: “I’ve been on the road for seven weeks of the past eight
visiting customers. And what I’ve found is that most big retailers expect their business to be down
substantially in the last quarter. And that, I believe, is the key. There is not enough demand on
the retail side for them to consider stocking up. If you look over the past year or so, we’ve been
used to retail growth from quarter to quarter in the high single digits to as high as 10 to 20
percent for some of them. If you look over the last two quarters, it has been very mixed. Minuses
have almost outpaced the pluses, and the pluses, with only a few exceptions, are in the lower
single digits to the mid-single digits. And that, of course, plays in the demand for our textile
products. It is the general uncertainty in economic growth that is now reflected in the order
situation. The stock market is jumping up and down like crazy. One day you’ve got housing numbers
that are bad and everybody kind of buries their heads in the sand. The more you are based on
commodity items, the worse it is. You just can’t compete here in commodity items anymore.”

The prospects of a slower fourth quarter are of less of a concern to some manufacturers than
the possibility of an extended decrease in demand. “I don’t know that I would say demand is
dropping,” said one North Carolina spinner. “But it seems obvious that the growth in demand is
slowing – and that may be a longer-term thing. If you look at the US economy from a historical
perspective, it seems we are near the end of a growth period and are not really certain about what
lies ahead. We are watching the market very closely right now to make sure we are managing our
inventory situation and keeping it in line with our expectations of demand over the next few

While there are no magic answers to generating business as demand slows, yarn spinners are
almost universally agreed that quick response and enhanced service provide the avenue to continued
growth. “You’ve got to be prepared to go the extra mile,” said an executive of a leading ring
spinner. “You have to provide turnaround times that others can’t or won’t. And you have to be
completely and totally focused on quality. Customers have more choices today about where and how
they buy products than ever before. And while price will always be the biggest driver for many
companies, response, quality and service come a close second. With the constantly changing demands
of the retailer, you can’t leave them hanging with product they can’t sell. Today, more than ever,
it’s about getting products on the shelf and off the shelf as quickly as possible and then doing
the same all over again with a new or differentiated product.”

The question is, should the US economy begin a downturn, is enhanced service and delivery
enough to offset what may become a tendency of retailers and second-tier customers to buy on price

“I don’t know the answer to that,” said one Georgia spinner. “But I just know that it had
better be, because that’s all we’ve got.”

August 7, 2007